Environmental Protection Inspection in Shandong Province

On March 22nd, Shandong Province started a new Environmental Protection Inspection. They have organized five inspection teams. This inspection will last around one month.

It will cover 10 cities including Weifang, Dongying, Jining, Heze, Taian, Rizhao, Zibo, Binzhou, Liaocheng and Laiwu.

Through the provincial environmental protection inspectors, they will:

  • focus on the understanding and implementation of national and provincial environmental protection decision-making arrangements.
  • Address the outstanding environmental problems.
  • Implement the main responsibility for environmental protection.
  • Promote the construction of ecological civilization and environmental protection, and promote green development.

They will focus on the outstanding environmental problems which have been complained about or have bad social impact.

The inspectors will focus on environmental quality deterioration of the regional watershed and remediation trend.

They will also focus on the government and Party officials work to protect the environment and enact the standards and regulations.

Another focus is to understand the local government’s implementation of environmental protection on “party and government responsibilities”, “a position have double responsibility”, and its strict accountability, etc.

Inspectors will listen to the report, access documents, have individual conversations, visit sites and make inquiries, do spot checks, etc.

The Beijing environmental inspection team will do another round of checks in Shandong starting in April. We suspect Shandong Province is rolling out this inspection in order to be ready for when the people from Beijing arrive.

 

There is a high danger that Shandong government will take measures to ensure a good inspection.  Aluminum smelters such as Hongqiao and Xinfa are in areas named as being inspected.   Will these smelters pass inspection?

In this month’s World Aluminum Monthly, we provide subscribers with a list of those smelters that have environmental protection equipment in Shandong province – and those that don’t.   This information is exclusive to subscribers to the World Aluminum Monthly.  Contact us to learn more about subscribing.   enquiries@az-china.com

We will notify clients and subscribers of any developments.

Picture source: http://bgs.sdein.gov.cn/

Winter coming for one smelter, but what about the others?

Liaocheng smelter in Shandong province will close 30% of its smelting capacity next winter.  The city fathers have announced they will implement cuts to factories in a wide variety of industries, including cement, steel, pharmaceutical, pesticide and aluminum.

We understand the smelter will run at top possible amps in the run-up to the shut-down.

The announcement comes from the government not the smelter, which is understandable and reflects what we reported last week.   Local governments are keen to avoid jail time.

This year’s environmental inspections are working on a much tighter torsion than last year.   Threats of jail for bureaucrats were around last year, but this year the rhetoric is much tougher.  As we have mentioned previously, the central government and the Ministry of Environmental Protection have made it clear that local EPA and local government officials would be held accountable if efforts against pollution weren’t good enough.  The fact that the decision to punish any official will be based on subjective analysis means that local bureaucrats have to over-achieve in order to avoid punishment.

But the trouble is, the local governments are working to avoid prison, not to reduce air pollution through strategic sustained action.  Closing some factories while the inspectors are in town does not seem very smart to me.  It suggests the local bureaucrats are hoping the inspectors don’t read the local newspapers, watch TV or talk to the local citizens, much less check what pollution levels those factories were running at prior to being closed.

There’s now no doubting that this time Beijing means business.   Perhaps it is just a matter of time before the local governments get over their fears and get on with their jobs.

Meantime, the affected industries find themselves with no clarity on what the rules are, and are unable to make commitments that might get jeopardized if they get a close notice.

By the way, Liaocheng is very close to another much larger smelter, the Shandong Xinfa plant.  It will be interesting to see if they are forced to follow suit.

 

 

April Environmental Inspection in 15 Provinces

From 2017 February 15th to March 15th, the central environmental inspection team did the first air quality inspections for 2017. As we reported last week, the inspections had a direct though small impact on the aluminum industry. Linfeng Aluminum and Power idled 50 pots and shut 28 pots till now because the environmental team were in Henan Province. Many Henan smelters got worried about they will be asked to cut capacity too.

From March 15th to 18th, together with the local environmental protection departments in Beijing, Tianjin, Hebei, Shanxi, Shandong and Henan, the Ministry of Environmental Protection sent another 18 teams to do special inspections on air pollution control work in 18 key cities. The inspections found 202 environmental problems.

Just as we predicted, another round of inspection is coming. From April, the central environmental inspection will start another check in 15 provinces, including Hunan, Anhui, Xinjiang, Xizang, Guizhou, Sichuan, Shanxi, Shandong, Tianjin, Hainan, Liaoning, Jilin, Zhejiang, Shanghai and Fujian.

This April, the central environmental protection inspection team will be stationed in Hunan. The check will last 3 months. The inspectors will also cover the inspections to three prefecture-level cities. The inspection times for the rest of provinces have not been disclosed.

The EPA is increasing manpower for all these inspections.  The teams heading out in April are still in training school.

We have noticed the major aluminum production regions Xinjiang and Shandong had been listed in the April inspection target. Xinjiang has 19% of China’s aluminum operating capacity and Shandong has 30%, meaning that virtually half China’s aluminum capacity resides in just these two provinces.   This may add an element of risk to the national industry if the environmental inspections keep returning to them.  This is the 4th time Shandong province has been under the microscope since the middle of last year.

We believe the big smelters who have the environmental protection equipment might not be impacted much in the April check. The small smelters, small aluminum processing factories and relevant raw material factories may be more exposed to risks from the inspections.

Based on Mr. Chen Jining’s speech in Lianghui, there will be two more inspections after the March inspection. It means there will be at least one more round of inspection after the April check. The MEP’s target is to do environmental inspections to cover all provinces in 2017. For the areas that have the environmental problems, they will undergo rechecks by the environmental teams.

China experienced the heavy smog air pollution for at least two days in North China now. We believe the April environmental inspections will be a strict check. We will update the April environmental inspections information to our subscribers in time.

Picture source:

http://www.zhb.gov.cn/gkml/hbb/qt/201703/t20170309_398802.htm

Petcoke – can’t live without it

During the tough reforming period in China, petroleum coke, or petcoke has suffered much, with calcining plants being ordered to cut capacity or close completely. But if you talk about aluminum, you must acknowledge that petcoke is important now and in future.The process for making aluminum has not changed in decades, so if demand for aluminum is going to grow, petcoke demand will also grow. Let’s have a look what petcoke is going through.

As one inconspicuous by-product of crude oil, petcoke is mostly sold as a fuel, especially in times when coal prices are high.  While taking into account the typical character of petcoke as a polluting material, its usage is quite limited. The illustration below explained the pressures on coke during recent years.

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The important factor I want to show is the antagonistic relation between policy, economy and market demand. Last year, China imported plenty crude oil, becoming to the largest importing country around the world.  Processing volumes also increased 3% y/y. However, the quality declined apparently. Although petcoke production has risen so far this year,  anode grade output has not, and this is directly because of the crude oils that China is importing.  Unlike other commodities, users of petcoke have almost no influence on the quality that comes out of the oil refinery.  How can users influence the quality of the product offered to them?   In addition, with aluminum expanding, how do smelters get enough petcoke, even regardless of the quality?

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This chart above showed monthly coke production for five years. For January of 2017, output is at historical high levels, however, downstream carbon factories always complained the lack of moderate coke even though they are suffering intermittent shut down with the severe pressure of environmental inspection. So where is the petcoke going?

If you are our subscriber of BCR report, you should be familiar with the following picture.

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Based on IAI statistics, China’s production of aluminum reached 2,950kt in February. In theory, anode grade coke demand is therefore 1.6Mt, an increase of 19% y/y. Actual output of coke rose by only 3%. Ignore all factors such as policy and economy, it is only about conservation of energy. If aluminium industry will boost constantly in future, we should give more attention to petcoke and all raw material.

All the data I presented here is in the standard reports we publish.  If you want to understand more about petcoke and other products, please contact us. 

Aluminum prices have plenty of support

The recent price of aluminum has consolidated around 14,000 yuan/ton, but with a lack of clear direction, resulting in significant differences in market sentiment.Bears presently outweigh bulls, but traders do not need to be too pessimistic.

On the cost side, after the Spring Festival although China’s alumina prices have dropped more than 100 yuan/ton, the pre-bake anode, fluoride and other related materials prices continue to rise. Meanwhile coal prices are strong, especially Bohai Sea thermal coal.  The coal index has been rising for two consecutive weeks, and Shaanxi, Shanxi and other coal-producing provinces also rose significantly. As of the end of February, China’s average cost of electrolytic aluminum smelting is still around 13750 yuan/ton, meaning the market price is barely above the costs.  The strong costs will tend to support aluminum prices.

Environmental protection activities will also help to support aluminum prices.  See our story from earlier today about the Linfeng smelter in Henan province.  Although individual cuts amount to almost nothing in market terms, the ongoing uncertainty about further closures will support forward prices.

From the transport point of view, the Xinjiang area is still laboring under the pressure of a shortage of rail cars and congestion on the rail lines.   There is a lot of aluminum sitting at the railway stations, and smelters there are now holding metal back, and this will add pressure to the price.    We expect demand to remain robust, meaning inventory levels will likely fall, and that will also support the price.

In summary, I believe that the current market price of electrolytic aluminum is well supported, and traders should not be too pessimistic.

Linfeng smelter sends alarm bells

Aluminum smelters in Henan province are worried about a small plant in the south of the province.   Linfeng smelter, with only 250kt capacity, is causing smelters elsewhere in Henan province to lose sleep.

That’s because the Henan government has ordered the smelter to cut 30% of its capacity for as long as the environmental inspection team is in town.  The closure was originally for only the couple of days March 10 to March 12, but because the inspection team has not left yet, the smelter has to remain in reduced running mode.

The Linfeng smelter has 234 pots, of which 50 are in idle mode (just enough electricity going through to keep the metal liquid) while another 28 pots have been switched off.

Linfeng is a locally-owned SOE, which made it easy for the government to implement the order.

The loss of metal will be tiny in market terms, but the other smelters in Henan are worried that as the inspection teams move around the province, they will be instructed to do the same thing.  We called several smelters around Henan province, and they told us they expect to be ordered to slow down for a few days as well.  The cost of slowing a smelter like this is hard to gauge precisely, but with high metal prices, the opportunity cost alone is significant.

Interestingly, smelters in Shandong province were not so worried, but for potentially bad reasons.   When we called Shandong smelters to ask them if they would be subject to a temporary close such as we saw in Henan, the common response was, “Oh no, many of the country’s top leaders come from Shandong province, and they won’t let this area be hurt.”  That response reminds me of Shakespeare’s Falstaff in King Henry IV Part 2.   The new king turned on his old friend to show his new regal demeanor.  In today’s political climate, top officials are going to be like the new king, and be tougher on their local patches.  But we shall see.

The environmental inspections show no signs of slowing down.  When this round of inspections was launched in February, it was expected they would last one month.  But the teams have given no sign that they are planning to wrap up any time soon.  As well, new teams have been despatched to other provinces, including Xinjiang, home to many large smelters.

By the way, all the base information about the Linfeng smelter is in the AZ China Pipeline Report.  It’s in times of volatility like today that such reports really come into their own.   Make sure you get yourself  a subscription.  Complete the contact form below, and we will do the rest.

Acknowledgements to the BBC for the feature image, from their recent production of Shakespeare’s play.

Editor’s note: Thanks to reader EO for pointing out that the Linfeng smelter is not a locally-owned SOE.  It is part of the Zhongfu Industrial Group, with Vimetco the ultimate owner.